Mutual Fund Liquidation - Tax Consequences?

[whatistiaa]

I've been doing taxes and saw something new that I wanted to get some advice on. I had a small holding in a mutual fund that was closed a while ago, but has not yet been fully liquidated. For the year of 2017, I have a figure reported on 1099-DIV Line 8 - cash liquidation distribution. My understanding is this:

Say my original basis is $100.

If the total amount I've received in cash liquidation distributions is <$100 in all previous years, I report nothing in my tax return and simply subtract the total from the basis (to be used next year).
[eg: Fund closed in 2017, paid out $60 in cash liquidation distributions, I report nothing in my 2017 tax return, and use 100-60=$40 as my remaining basis for the future]

If in the past year, the cash liquidation distribution I received is greater than the remaining basis, then I report this as a simple capital gain.
[eg: same example as above, but in 2018, I get another $50 in cash liquidation distributions, I report $50-$40 as LTCG]

If the fund is fully liquidated in say 2017, and that distribution is still less than my basis, I report a capital loss.
[New eg: Fund closed in 2017, fully liquidated same year, paid out $80 in cash liquidation distributions, I report 80-100 = $(20) as capital loss]

Am I correct in these scenarios?

[DianeW · Accepted solution]

You are correct! Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock. 

If it was a partial liquidation, there is nothing to report on your tax return. You adjust the cost basis of your stock or mutual fund by the amount of the partial liquidation shown in Box 8 or Box 9, then when you eventually sell the stock you will use the lowered cost basis as the purchase price of the stock. 

If the liquidating distribution shown in Box 8 or 9 is a complete liquidation, then report the amount in Box 8 or 9 on the stock sale screen as a stock sale. For example, if your cost basis in stock in a company is $1,000 and the company is totally liquidated, then if you receive a 1099-DIV with Box 8 showing $400 and you received nothing else from the liquidation, then you would report the stock as a sale on the stock sale screen and report $400 as the sales price and $1,000 as the cost basis in the stock that was completely liquidated.

[whatistiaa]

Great, that is very helpful. Thank you!

[DianeW]

@whatistiaa You're welcome!

[Dean68]

I understand what needs to happen but how do I report the sale since I did not get a 1099-B? I only got the 1099-DIV that showed the cash liquidation distribution.

[AnnetteB6]

You can still go through the Wages and Income > Investment Sales > Stocks, Cryptocurrency, Mutual Funds, Bonds, Other section of your return to enter the sale of an investment without actually having a Form 1099-B in hand.  You will just need to know the information about basis, proceeds, purchase date, and sale date as if it had been reported on Form 1099-B.

As you start going through that section, you can enter the payee shown on the Form 1099-DIV as the payee for Form 1099-B and continue moving forward, telling the program that you do not want to import the information.  

The following TurboTax help article may give you some further guidance:  

Where do I enter or import a 1099-B?

@Dean68